Dear Mr. McNealy:
I have been requested to write to you regarding my business relationship with Tom Hicks. I bring the perspective of a lawyer who has been practicing for over thirty years, mostly in the commercial transactions, ‘bankruptcy, and creditors’ and debtors’ rights areas. I am a graduate of the Harvard Law School. I became acquainted with Tom when he was the newly appointed President of the Present Company, which operated a chain of about 31 discount catalogue stores. My firm had been requested by Ropes and Gray to represent Present Company, and to work with Mr. Hicks in connection with the restructuring of the business. Present Company was a similar operation to the Service Merchandise Company. The Present Company started in Rochester as a family business. It had gone public and then been taken private through a management buyout aided by Butler Capital Corp’s financing. Until Mr. Hicks was appointed, a family member has been in control of the Company at all times.
What Mr. Hicks found was a company in disarray, without a marketing strategy, without adequate financial controls, an inability to determine if a particular store was profitable, and a staff that had grown complacent. Tom’s task was to determine if there was a core company worth saving, and then to create a business plan to save it. He was hired by Butler Capital Corp., which had a substantial equity and debt position in the Present Company. Tom quickly formulated a strategy to save the company. As I recall, the company had almost a million and a half dollars in return merchandise that had not been returned to the manufacturers by the warehouse staff. There were a number of stores without adequate business to pay their lease and utilities, much less labor costs. Tom closed those stores immediately, and began negotiations with their landlords. There were a number of other stores which appeared to be marginally profitable. Tom reviewed their finances, business plans and future projections to determine if they should survive, weighed against the lease liability and costs of closing them. A number of those stores were closed, and a number of the others were retained, based upon his view of the new Present Company.
Rather than have going out-of-business sales, Tom determined that it would be less costly to move the merchandise, in many cases, to the closest remaining store, thereby obtaining additional merchandise without stretching Present’s already extended suppliers.
Tom was one of the hardest working Chief Executives I have encountered. He worked on a future model for the catalogue showroom business which held great promise, in my opinion. About two thirds of the way through the process, Butler Capital Corp. decided that it was in the best interest of the creditors to liquidate the business as quickly as possible. While Tom disagreed with this decision, he immediately implemented a going out-of-business sale which was very successful. He did so efficiently and graciously, despite the fact that he had come to Present Company with the expectation that Butler would give him the time and additional finances necessary to make the Present Company a success. He left an executive position with another company to come to the Present Company, only to have the proverbial rug pulled out from under him by Butler Capital.
Finally, I found Tom to be a gentlemen, hardworking, and meticulously honest. He quickly engendered in a number of the former employees, a loyalty and excitement that had been otherwise lacking in this company. He was faithful to those employees and stood up for them when Butler decided to withdraw their corporate support. Because of my high regard for him, I have recommended Mr. Hicks for a number of other potential engagements similar to that which he undertook for Present Company.
I would be happy to answer any questions you may have about Mr. Hicks. I hope this letter assists you in whatever decision you have to make regarding Mr. Hicks and/or his company.
Very truly yours,
Francis E. Kenny